Black Box: Restaurants are still losing customers

Same-store sales rose again in October, but traffic continues to decline.
Photograph: Shutterstock

There was some good news for restaurants last month: Same-store sales increased 0.8%, according to the latest monthly Black Box Intelligence index from the labor consulting and data firm TDn2K.

The better news, however, is that the increase came during an October in which the comparisons from a year ago were relatively strong. On a two-year basis, same-store sales rose 1.1% during the month, far higher than the average two-year trend of -0.9% over the past six months. That eases a real fear that the industry faced weak end-of-year results.

“We were lapping over some tough comparisons, but the industry held on,” said Victor Fernandez, vice president of insights and knowledge for TDn2K. “We’re still having growth, which everything in the economy suggests should be happening.”

That’s the good news.

The bad news for the industry is that those rising sales are coming from consumers spending more for their food, either through higher prices or because they’re buying more or because chains are discounting less.

Same-store traffic declined 2.2% in October, an 80-basis-point drop from the September number.

Average guest check rose 3%, the highest level in three years.

The higher guest check average “keeps sales on the positive side,” Fernandez said. “Sales and profits are up but not necessarily traffic.”

Yet, he said, “given the environment we’re in,” higher traffic “doesn’t seem to be an option.”

“It doesn’t seem to be something the industry is able to fix,” Fernandez added.

The traffic challenges intensify an ongoing market share battle in the restaurant industry. Growth has outpaced demand in recent years, making it harder for chains to lure more customers into their restaurants.

That has also contributed to a phenomenon in which the best performing concepts are lapping weaker concepts.

“What we’re seeing over the last three years with comp sales is a widening between the top quartile and the bottom,” Fernandez said. “Those doing well are increasingly doing well. Some that are struggling are maybe doing a little better, but they’re not keeping up with the growth on the top end of the equation.”

One state that was soft during October was Texas, where parts of the state have been hit with record rainfall—problems cited by the publicly traded chain Chuy’s to explain weak sales and the Mexican concept Taco Bueno, which just filed for bankruptcy protection.

Fernandez said that Texas was one of the areas seeing declining sales during the month, but he also noted that comparisons were especially tough—Texas sales were strong a year ago thanks to a “hurricane bounce” during the Hurricane Harvey recovery.

The restaurant industry has faced more than three years of sales and traffic declines despite an otherwise strong economy, suggesting that consumers are shifting their spending toward other sources or that the industry is overbuilt or some combination of factors.

Fernandez said it could be modest changes in consumer behavior all at once that are affecting industry traffic.

“When you look at traffic down 2%, it sounds like a big deal,” he said. “But with individual consumers who maybe visit a casual-dining chain six times during the month, if they didn’t go out once because it was raining, that could have caused that.”

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